Germany's Roadmap For A Greek Return To The Drachma

There has been much speculation about how the Greek endgame will play out, but precious little from the perspective of Germany. Until today. Courtesy of a three part series from Handeslblatt (here, here and here) we now know precisely what the next steps are as visualized by Europe's piggybank, which now is telegraphing it is set to cut Europe's most wayward child loose.

Step-by-step summary:

Greece cannot stand by the spending cuts expected by the Troika. €11.5 Bn until June

The creditors refuse the payment of the next tranche.Greece must pay €30 Bn until the end of June, to pay pensions, civil servants salaries, and support its ailing banking sector.

Greece cannot service its debt anymore. Which means essentially service its debt to debtors like banks, bringing its banking sector to a likely bankruptcy (remember Greek banks were already hardly met by the €80 Bn PSI in March, 2 big Greek banks already have negative equity).

Greece must save its banks to avoid a bank run. There will be no other way than reintroducing the Drachma since no one will lend them money, IMF or EU.

Greece gets out of the Euro and reintroduces Drachma. "It wouldn’t be that easy since to avoid panic and a bank run, a banking holiday (perhaps a week) would be necessary.Even with capital controls with foreign contries, the process would remain technically difficult. For the Greeks this would mean serious consequences as loans would see the value drop and prices would go up. On the short term, the competitiveness of the country would improve. According to economists, a 50% depreciation would be necessary. That would, at least theoretically, mean that holidays in Greece would be substantially cheaper. It can still be doubted that Greece would solve its problems its way. Who wants to spend there its holidays , where unrest and chaos reign. “Greece could earn air to breath on the short term. This would change nothing to its problems on the longer term”, Commerzbank economist Christoph Weil says."

Much more in the full Handelsblatt series.

The only question is now that the return of the Drachma appears set, how long before the "Greek case" metastatizes to Spain, which is already roughly where Greece was about a year ago, with the bank sector now effectively having seized up, and the only question is how soon until the sovereign debt has to get the "PSI" treatment.

What dizzying speed all this is happenign at, eh? T'was just yesterday that Euro Zone Unity was paramount, tantamount and generally...mounted y'know.

And then along comes this past weekend. Nothing too great happens. Not tectonic anyways. And suddenly all we can see is the short hair on a greek arse disappearing down the debted hole of no return, with a diffic ult transition predicted.

WHAT is the other hand doing? So much distraction.

Greeks will have to riot no mater what. If there is no money, there is no money. It's part of the script anyways. Fitting that the land of Playdough and Ariestoddler loses all reason.

"Who wants to spend there its holidays , where unrest and chaos reign."

Well if you dumb fuckers had allowed Greece to do this a year and a half ago with when it was already BLATANTLY OBVIOUS that this was the inevitable conclusion anyway, they wouldn't have had so much unrest and chaos.

No your money is safer in the bank... it's not like the people running these instutions are greedy and have no character. They are bankers and only have the best interest of society as a whole in mind...nothing will happen to your deposits.

Then they could all run around in their little marble-bag Speedos, and not worry about having to wake up at 5:30 to nab the best poolside deckchairs, and they could listen to kraftwerk and the Scorpions all day long whilst sipping shitty retsina which reminds them of their own shitty riesling back home.

Greece defaults and retains its gold. It makes itself a super tourist destination and sucks all those tourists out of Non-Euro Turkey. It creates a tax haven to encourage Russian and Middle Eastern money. It invites Russian and Chinese investors. Governments nationalise banks throughout the EU. Geithner offers TARP 2,3 and 4 to US Banks and Happy Clappy Americans sing Halleluja.

It is all possible. Look how readily the US broke Kosovo out of Serbia, destroyed Libya, destroyed Iraq - noone asked about repaying loans or whether Iraq could pay the costs of invasion. Afghanistan - the Us did not ask the Chinese how many Treasuries they would buy to finance it and we don't see a US Debt Clock for Afghanistan - it simply gets done - just like the J-35 jet fighter - just buy them and hang the consequences

That is how life works. You are all CPAs fretting about the Audit - you never bothered when Wall Street was loading up on Dericvatives or when putting Lehman into liquidation.......but Greece....well the Greeks should take time off from hunting for food in garbage cans to wonder about poor Bond traders in hedge funds and their bonuses......right.

Nonsense. During every bull run, investors have been thrown off at exactly these correction cycles, only to watch the correction stop and the market turn-around. The tech bubble was a classic case of folks not having the stomach to ride out the corrections when it was under-owned and the mantra of why the bull could no longer run made alot of sense.

Patience. If you understand what gold is, this is an opportunity. If you're overleveraged or just a trader in this market, you will probably be hosed.

Everyone gets a massive haircut on the debt they OWE OR on promises they are OWED.

Savers that had Euros, Gold or Silver in their mattresses or overseas should gain purchasing power

Government workers, 'social workers', career students, 'artists', lawyers, and other leaches of society become redundant - their ranks drastically reduced

Risk takers will look at opportunities and boot-strap new business activities - many will fail, but a few will take-off and a new class of entrepreneurs take hold

Those with savings will begin getting a real rate of return commensurate with risk

The indolent student class and the hangers-on will either provide productive services to society vie employment or monetizing other talents or find living off of others far more difficult than before

In 5 years, Greece become a more vibrant place to live - the shadow world of tax avoidance, the boon in specious educational majors, and the lack of a safety net slowly erodes the ranks of the parasites

right. Now please tell me this; 1) where is the energy coming from that is required in order to make all this happen, 2) who is providing it, and 3) will the energy producers continue to accept worthless paper or do the greeks have a huge stash of gold somewhere that they will be using to pay for the energy they need to make any economic recovery actually happen?

Like most trade, it will come from products that they produce. Greece will learn that only 'hard money', be it cheese, gold or yogurt is the path to obtain desperately needed resources they don't produce.

If they fail to understand that, well, then I guess they're screwed. That realization should focus their human capital in the right direction. I cannot wait for it to happen here!

Ah yes. There is no more energy. Right. And those with energy are husbanding it for trade for ONLY precious, rare products - LIKE US DOLLARS! LOL

Poor Taiwan, Singapore, Japan, etc..... They'll never produce anything because they have no indigenous energy....Oh wait, they do make stuff and get their energy! Now, how is this possible???? Hmmmm.....

Pay attention, who said that there was no more energy? You obviously can not read.

The question is how much energy is in Greece numbnuts.

Moreover, the countries you mention do produce stuff because they also developed and are developing much of the new technology. Now, please remind us all, what does Geece have to offer? Thanks for playing, but you still FAIL.

No, you cannot read. I told you Greek companies will trade their products (MOSTLY FOODSTUFFS listed in post above) for 'currency' they can use to purchase energy. Greece also has a tourism industry that can also generate 'currency.'

Trade does not have to be direct with an oil producer for this to work. For example, Greece produces Yogurt that is in demand by the USA and rest of Europe. THey can exchange this for currency to purchase oil or natgas. Greek companies can promise equity in businesses or cashflow streams to investors in exchange for 'curreny' to purchase the energy needed for production.

How hard is this anyway? This has been going on since time began. Are you confusing Greek companies with Greek government?

BTW, name calling is the last resort for those with nothing else in their quill....

Having been in agriculture almost thirty years I assure you that food production is very energy intensive. There isn't enough time to explain why you FAIL yet again. You really think those "foodstuffs" cannot be produced elsewhere for less???

For the record, the greeks will suffer greatly, but they will survive. Personally I think the greek companies should leverage their assets in the shipping industry in order to bring world trade to it's knees. They are sailors after all and if the world won't negotiate, they could resort to piracy or sinking a few of those vessels in real inconvenient locations. You talk about "foodstuffs", which are extremely energy intensive to produce, and then you ignore an area where the greeks and greek companies have tremendous assets. Again, thanks for playing, but FAIL.

This wasn't supposed to be an exhaustive treatise on how Greek companies translate their products inot things they can trade for energy.

So, to go to your original question "where will the energy come from and from whom", I guess you finally answered it yourself -- by leveraging their products and ingenuity.

As an FYI, we raise crops and animals here. I've been doing it for quite a while now. As a reminded, farming is fossil fuel intensive when labor is scarce/expensive. Farming can be less fossil fuel intensive when labor is abundant and cheap. If a country needs to boot-strap itself, there is no shortage of human creativity that can be brought to bear to solve a problem.

Please try to stay focused. Who said anything about "selling tractors".

So essentially what you are saying is that Greece can become competitive because they have so many people desperate to become sharecroppers? I thought the U.S. already found out that slavery does not work out so well. Just the same, I think I will take the other side of that trade. Good luck.

Having been in agriculture almost thirty years I assure you that food production is very energy intensive. There isn't enough time to explain why you FAIL yet again. You really think those "foodstuffs" cannot be produced elsewhere for less???

Absolutely correct. That's why the world only started agricultural production in 1859 after the Titusville discovery. Before that our forefathers were all hunter-gatherers. Luckily Greece has goats and fish.

Piraeus Bank has launched an attack on the Reuters news group, for an article concerning the bank's property deals.

One of Greece's biggest banks has filed a lawsuit against Reuters claiming 50 million euros in damages over a story that exposed a series of property deals between the bank and companies run by the family of its executive chairman.

What they should do is disavow the Euro and pursue the Icelandic model. They should make no secret of their disdain for banksterism and invite all like thinking people to support their cause by buying yogurt, honey and ouzo and vacationng in the Greek isles which would be a bargain compared to Euro vacation destinations.

I don't know about you, I would happily support that model with my customer patronage. The problem is if they do this Germany will declare financial war on them.

Yes, mood is changing - also in the Merkel-Court-Press (although they are still defending austerity) - here in Germany. Too much headwind from experts, bloggs, politicians. This time it seemes that they will give up Greece. We will see the inflection after Sunday, when they have elected here in Nordrhein-Westfalen (at the time is election campain rhetoric everywhere).

Interesting: Yesterday CDU-front-runner Norbert Röttgen (same party as Merkel) declared the election as a voting about the Euro-policy of Merkel, although the polling concerns only issues of the biggest Bundesland in Germany. His chief (Angela Merkel) was not very amused (if not to say in a real peeve) because there is no doubt that the left parties will win here in NRW...;-)

"It's how their third attempt to dominate europe in a century will collapse"

I don't think that's the real backround. To the contrary: Germany gives up it's own national interests (and workers) to serve the rest. ClubMed-workers were remunerated in a much too strong curreny - German workers in a much too weak currencies. It's insane that the average income of Greece has been about 80% of the German incomes (with goat milk, olives and lending beach chares - most of them tax-free) - as recently as 3-4 years ago in Spain politicians proudly pronounced that spanish average incomes soon will exceed German incomes.

10 percent of the Germans (the economic and political class) did make profit - the rest served. Because money doesn't care about national vanities.

The increase of wealth, infrastructure and real estate on (nevercomeback-)credits in the PIGGS since introduction of the Euro was significant and interests on borrows were based mainly on the reputaton of the Bundesbank - always in expectations that Germany backs this game. All this will finally be paid by German taxpayers (bailouts, transfers, haircuts, allocation of assets and target-credits) Thats the reason why none of the affected nations wants to step out.

Please… since when is the remuneration of individual citizens in any way related to the “National Interest” of any country in 2012.

You are a dairy cow.

The National Interest of Germany is the same as it always has been – To exert control over other European nations. Do you think Merkel gives a shit if you – The Citizens - have to pay for her privilege?

In modern terms you are now asked to become a debt slave to buy Europe instead of carrying a rifle to take it by force.

Either way, if you think Greeks, Spaniards and Italians have any interest in raising their productivity to German levels only to pay the world price for their domestic produce, you are dreaming.

You forgot that it was Greece - against many warnings - which enfcorced it's accession to the EWS and EMU in the late 90th. It was all over town what would be the consequencs (...which doesn't excuse international bankers (and their delegates in Bruxelles) business model to credit them without end - the big bubble was part of the game...)

The problem is that now the markets see Spanish and Italian debt as unappealing, but not actually toxic. Kind of like leftovers that have been in the refrigerator for six weeks or a couple of months. You would think very carefully before eating them, but they probably wouldn't kill you.

If the euro starts to break up, then Spanish and Italian debt will become absolutely toxic. Not like 3-4 month leftovers with a light covering of whitish fuzz. No, they would then become so toxic that you would have to have the entire refrigerator carted away to a special toxic waste dump.

However we shouldn't underestimate the ability of TPTB to get together give the can one more swift kick.